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Supreme Court Likes Minnesota's Life Beneficiary Designation Law

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The U.S. Supreme Court is backing Minnesota’s effort to clear up some of the life insurance policy beneficiary designation problems that result from divorce.

The court ruled 8-1 today, in Sveen et al. v. Melin, that Minnesota can apply its beneficiary designation fix law to policies that were in force before 2002, when the fix law was enacted, as well as to policies purchased after the law was already in effect.

The 2002 Minnesota law that states that, unless a couple make other arrangements, the dissolution or annulment of a marriage revokes all of the couple’s revocable life insurance beneficiary designations.

(Related: Supreme Court Eyes State Moves to Cut Life Beneficiary Knots)

Justice Elena Kagan writes, in an opinion for the majority, that the Minnesota law causes no substantial impairment to the contractual relationship between the policyholder and the insurer.

“The statute is designed to reflect a policyholder’s intent,” Kagan writes.

If an insured wants to keep a life insurance policy beneficiary designation in place after a divorce, “he may do so by the simple act of sending a change-of-beneficiary form to his insurer,” Kagan writes.

But the court’s newest justice, Neil Gorsuch, writes in a dissent that, under the Contracts Clause of the U.S. Constitution, any state law that changes a contractual relationship retroactively is unconstitutional.

Many divorcing spouses may want to revoke the life insurance beneficiary designations they made while they were married, but “I do not see how a statute doesn’t substantially impair contracts just because it reflects ‘many’ people’s preferences,” Gorsuch writes.

The Minnesota law “substantially impairs life insurance contracts by retroactively revising their key term,” Gorsuch writes.

A document that includes both the majority opinion and the dissent is available here.

The Case

The man insured by the policy involved in the dispute, Mark Sveen, bought a life insurance policy from Metropolitan Life Insurance Company, a unit of MetLife Inc., in 1997. He married Kaye Melin later in 1997. In 1998, he named her to be his primary beneficiary.

Sveen and Melin divorced in 2007.

Sveen died in 2011, at the age of 46.

Melin said that she and Sveen had agreed that he would continue to make her the beneficiary of the life insurance policy.

Lawyers for Melin, and for Mark Veen’s children from another marriage, never introduced any written documents showing what Mark Veen wanted to do about the beneficiary designation.

Metropolitan Life asked the U.S. District Court for the District of Minnesota for a determination about which parties should get the death benefits.

The district court ruled that the 2002 Minnesota beneficiary designation fix law should apply. The district court told Metropolitan Life  to pay the death benefits to Mark Veen’s children.

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The 8th U.S. Circuit Court of Appeals reversed that decision. The 8th Circuit ruled that the Contracts Clause of the U.S. Constitution, which forbids states from interfering with contractual rights retroactively, should block the Minnesota law, and a similar law enacted in Oklahoma.

Kagan’s Opinion

Kagan writes that a state law affecting contractual arrangements retroactively may be acceptable if it can pass a two-step test.

A court should first ask “whether the state law has ‘operated as a substantial impairment of a contractual relationship,’” Kagan writes.

The court should then ask whether the state law is “drawn in an ‘appropriate’ and ‘reasonable’ way to advance ‘a significant and legitimate public purpose,’” Kagan writes.

The 2002 Minnesota law seems to carry out most divorcing policyholders’ beneficiary designation wishes, and the burden it imposes on policyholders who want to override the effects of the state law is minimal, Kagan writes.

The Dissent

Gorsuch writes in his dissent that the drafters of the Contracts Clause put the clause in the Constitution because of concerns that states would impair contracts retroactively for political reasons, such as punishing “disfavored minorities for past conduct they are powerless to change.”

The cases that have softened the effects of the clause are much different from  the Sveen case, Gorsuch writes.

Gorsuch contends that the majority is using two conflicting ideas to support its position.

The majority is saying, on the one hand, that any impairment that the Minnesota law causes for insurance contracts can be easily undone with a beneficiary designation change form, Gorsuch writes.

“Yet the court just finished telling us the statute is justified because most policyholders neglect  theirbeneficiary designations after divorce,” Gorsuch writes. “Both claims cannot be true. The statute cannot simultaneously be necessary because people are inattentive to the details of their insurance policies and constitutional because they are hyperaware of those same details.”


One question is whether lawyers may be able to find ways to apply the Sveen case interpretation of the Contracts  Clause to other state efforts to regulate insurance policies, or other types of contracts.

An older Contracts Clause case, for example, Home Building & Loan Association v. Blaisdell, dealt with a dispute over whether Minnesota had the ability, during the Great Depression, to temporarily restrict mortgage foreclosures.

In 2016, the Contracts Clause came up in connection with a New York state workers’ compensation insurance case. Insurers argued that a 2013 state law increased their workers’ comp liability retroactively. A state court ruled in the insurers’ favor, holding that the retroactive effects of the 2013 state law did violate the Contracts Clause.

Gorsuch, however, provides no hypothetical examples in his dissent of how parties might use the new Sveen interpretation of the Contracts Clause in connection with other court cases.

— Read Beneficiary Designations: 4 Reasons Why They May Be Out of Date, on ThinkAdvisor.

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